DISSOLUTION OF A PARTNESHIP

17,797 views

Published on

Published in: Business, Economy & Finance
1 Comment
6 Likes
Statistics
Notes
No Downloads
Views
Total views
17,797
On SlideShare
0
From Embeds
0
Number of Embeds
10
Actions
Shares
0
Downloads
284
Comments
1
Likes
6
Embeds 0
No embeds

No notes for slide

DISSOLUTION OF A PARTNESHIP

  1. 1. Dissolution of a partnership firm.
  2. 2. • NAME: ANUPAMA TELANG • ROLL NO: 53 • SEAT NO: 13-5554 • SUBJECT: FINANCIAL ACCOUNTS • PROFESSOR: MRS MONICA JAIN • TOPIC: DISSOLUTION OF A PARTNERSHIP FIRM
  3. 3. MEANING. • Dissolution means discontinuance. Dissolution can be classified in two parts: (i)Dissolution of Partnership (ii)Dissolution of firm.
  4. 4. Difference between Dissolution of partnership Dissolution of firm • Dissolution of partnership may or may not result in dissolution of the firm. • Business of the firm may continue. • Dissolution of the firm necessarily results in dissolution of partnership. • Business of the firm does not continue.
  5. 5. Modes of Dissolution of a Partnership Firm • The dissolution of partnership between all the partners of a firm is called the "dissolution of the firm". A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. The Indian Partnership Act, 1932 provides that a partnership firm may be dissolved • in any of the following modes: • i. Compulsory dissolution; • ii. Dissolution on the happening of certain contingencies; • iii. Dissolution by notice of partnership at will; • iv. Dissolution by the court.
  6. 6. Accounting treatment when the firm is dissolved due to insolvency of partners.
  7. 7. When there are more than two partners and one becomes insolvent……. • The solvent partners are liable to bear the loss of insolvent partner. The loss is borne by the solvent partners in the following partners: • a) When Garner Versus Murray rule is not applicable, the solvent partners are supposed to bear the loss according to the profit sharing ratio. • b) When the Garner versus Murray rule is applicable, the solvent partners are liable to bear the loss of insolvent partners according to the current capital ratio.
  8. 8. where all the partners are insolvent….. a) The Realisation Account is prepared without transferring external liabilities to it. b) Cash Account should be prepared after the Realisation Account. c) Cash in hand together with the amount realized on sale of asset and the amount received from the estate of insolvent partners shall be applied in the following order: i) For meeting the realization expenses ii) For meeting the external liabilities like bank loan, creditors, out standing expenses, etc. iii) For meeting partners loan account. iv) For paying partners’ capital account balances.
  9. 9. Cash distribution among partners
  10. 10.  With the application of the Garner vs. Murray rule  When cash is to be distributed as soon as possible ( Piecemeal realization)
  11. 11. Application of Garner vs. Murray rule
  12. 12. With the application of Garner vs. Murray rule • Any CREDIT balance in each partner’s capital account represents the amount which can be withdrawn from the partnership to each partner • Any DEBIT balance in a partner’s capital account represents additional cash to be injected by that partner. If he is insolvency to repay the amount, the solvency partners will be shared the amount in: o Profit & loss sharing ratio o Any agreed ratio given in the examination question o GARNER vs. MURRAY rule may be applied
  13. 13. What is Garner vs. Murray rule? •
  14. 14. Garner vs. Murray rule • Under the rule, a partner is required to contribute cash to eliminate the debit balance in his capital account • In the court case of Garner vs. Murray (1904), it was held that subject to any agreement to the contrary, such a debit balance deficiency was to be shared by the other partner not in their profit and loss sharing ratio but “ the ratio of their last agreed capitals”
  15. 15. Piecemeal Realization
  16. 16.  Cash is distributed as it becomes available, instead of waiting for all the assets to be realized first  Assets are sold piecemeal, and then outstanding debts are paid and the remaining cash is finally distributed to the partners as soon as possible  This situation occurs because some assets can be sold quickly, and some assets take longer time to be sold (i.e. less liquid)
  17. 17. Assumed Loss/Notional Loss Method • This is possible loss by assuming that the remaining assets do not have any scrap value • Any unsold assets will be assumed loss in each distribution
  18. 18. THANK YOU!

×